One of the most important decisions to take in stock market investments is not just what stocks to buy but also which stocks to avoid despite several sources or indicators recommending that you buy them. Volatile stocks may look like a good opportunity, but over time, a number of other factors come into play. The following article will try to help you make this decision by giving examples of some of the stocks to avoid in 2022.
List of 3 stocks to avoid in 2022
It is a ₹2516 cr airlines company that is unfortunately going through a crisis. It has been making increasing losses in the last 4 years (from ₹302 cr in 2019 to a massive ₹1744 cr loss in 2022. Consequently, it has seen its stock price fall by over 45% in the last 1 year. At this hour of vulnerability, it is looking at current liabilities of over ₹8529 cr in its March 2022 balance sheet, with only ₹2120 cr in current assets to meet that level of liability. Both its long term and short term borrowings skyrocketed in the last two years and the pandemic did not help the situation at all.
It is a ₹9542 cr company in the power generation sector – it is one of India’s leading wind turbine producers. However, it is a rather volatile stock – it fell by 45% in between April to July of 2022 (from ₹10.19 to ₹5.6) only to rise to ₹9.82 in September and has been falling since. Most importantly, its balance sheet shows that its total reserves and surplus are₹ (-5735) cr – its trade payables are increasing yearly to ₹1815 cr, short term borrowings have increased to ₹486 cr and non-current liabilities are at a whopping ₹5802 cr. It is a loss-making company and hence its potential for stock price appreciation looks bleak.
It is a telecom giant worth ₹28,907 cr which has been going through a rough patch lately. It has been facing losses tantamount to more than ₹28,000 cr in 2022 – though the losses are decreasing since 2020, the revenue has been decreasing too. Its current assets are worth ₹21,357 cr while its current liabilities are valued at ₹60,941.90 cr in March 2022. Hence, its share price has fallen from ₹15.55 in January 2022 to ₹9.10 in October.
How to avoid loss in the stock market
It would be a good idea for any trader to avoid the following types of stocks –
Stocks of companies who are in stagnant markets –
There is little hope for such companies unless they are market leaders and also have the ability to either rebrand or reinvent their product or have the adequate amount of capital to diversify their product offerings
Stocks of loss-making companies with low liquidity and solvency –
Such companies are extremely risky as one fine morning, following a small negative event, their stock price can plummet or they may declare bankruptcy. Most importantly, if they are bleeding money and making losses without any robust plan for the coming year then it is best to avoid that stock.
Stocks that are consistently falling in price despite showing earnings –
Sometimes long-term market sentiment becomes more important than the short term fundamentals of a company. This can be reversed only by a major change in the economy or market trends. It is hard to buy a stock and wait for such a miracle to happen. The most volatile stocks can seem attractive, but if over time, the price is falling then it is not a good stock to focus on, unless you are trading intraday.
Hot stocks –
Surely you get ‘stock tips’ every now and then from online sources. It is hard to rely on them as they can be strategies of big players trying to dump their holdings. Be sure to do your own research if you choose to invest in such companies.
Stocks of companies whose promoter holdings are increasing too much –
Suppose a company had a promoter holding of 10% but it increased to 20%. This is a good sign as it shows that the promoters are taking greater interest in holding the company as they are confident of its success. However, if the promoter holding was 45% and it suddenly increased to 90% in a matter of weeks, then it might mean that the other shareholders are dumping their shares – hence you should avoid such a stock.
Now that you know which stocks to avoid, try opening a demat account online and start exploring stocks and trading them for real.
Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.